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Bacchetta, Philippe,
Cédric Tille, and
Eric van Wincoop. 2011. "Regulating Asset Price Risk."
,
101(3): 410-12.
Show Article Details
DOI: 10.1257/aer.101.3.410
Abstract:There has been a long debate about whether speculators are stabilizing or not. We consider a model where speculators have a stabilizing role in normal times, but may also provoke large risk panics. The very feature that makes arbitrageurs liquidity providers in normal times, namely their tolerance of risk, enables a large increase in asset price risk during a financial panic. We show that a policy that discourages balance sheet risk reduces the magnitude of financial panics, as well as asset price risk in both normal and panic states.
Authors:
Bacchetta, Philippe (U Lausanne)
Tille, Cédric (Graduate Institute, Geneva)
van Wincoop, Eric (U VA)
JEL Classifications:
G01: Financial Crises
G12: Asset Pricing; Trading volume; Bond Interest Rates
G18: General Financial Markets: Government Policy and Regulation
G28: Financial Institutions and Services: Government Policy and Regulation
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